Content production company Big Un Ltd [ASX:BIG] rose 6% today on the ASX, reaching $4.24 per share.
What happened to the Big Un Share Price?
The $615 million business announced this morning that it had agreed to acquire US company Tipsly LLC. Tipsly owns a consumer app and platform. The platform was developed for the US drinks and hospitality market.
Big Un plans to incorporate Tipsly’s app and platform into its own, boosting its database by 140,000 small-to-medium-sized enterprises in the US hospitality space. In dollar figures, it will add a minimum of US$12 million in advertising revenues.
The purchase will be made in two stages. First, Big Un will pay for the app ($4.2 million) and tie it into its own mobile platform. It will then pay $2.4 million to acquire Tipsly’s platform.
What now for Big Un?
It’s hard to be too optimistic on Big Un going forward. While the company is growing cash receipts from customers (as shown in chart below), the company is yet to turn a profit.
Source: Big Un
In its 2017 annual report, Big Un reported sales of $13.9 million. Around 91% of this came from video revenues. The rest came from sponsors, interest income and research and development tax incentives.
For the year, Big Un made a $4.2 million loss. It was an improvement on last year, in which the company lost more than $7.7 million.
However, for Big Un to trade on a ‘reasonable’ multiple of 15-times earnings, the company would need to quickly generate $41 million in net income annually.
While this might happen, it’s simply a risk not worth taking in my view. There are alternatives in the market that could potentially allow investors to generate better returns without taking on excessive amounts of risk.
Junior Analyst, Money Morning
PS: We’ve identified three small-cap stocks trading on the ASX right now that we believe are high-growth opportunities that could pay off for investors that don’t mind investing small sums of capital. Remember though, never invest any more than you’re willing to lose.